Siemens board to meet as pressure on CEO mounts

Friday

Jul 26, 2013 at 11:48 AM

BLOOMBERG NEWS

Supervisory board members of Siemens AG, parent of Morgan Construction of Worcester, will meet this weekend to discuss the leadership of Europe's largest engineering company as investors and analysts question how long Chief Executive Officer Peter Loescher can keep his job.

Loescher, brought in in 2007 to clean up after the biggest corruption scandal in German history, yesterday cut a profit forecast for the fifth time in his six-year tenure. By contrast, competitor General Electric Co. last week reported second- quarter profit that beat analyst estimates, helped by a record order backlog.

"I'm underweight on Siemens and am glad that I am," said Carsten Hilck, a fund manager at Union Investment, which holds less than 1 percent of Siemens shares. The target cut "is not unexpected. This sort of thing can always happen at Siemens and it doesn't seem to be getting any better."

Austrian native Loescher, who joined Siemens from drugmaker Merck & Co. as the first CEO hired from outside the company, has presided over a failed push into environmentally friendly energy which led to spiraling costs, while writing down the value of acquisitions. Last year, he acknowledged that he had been slow to react to the economic downturn and the company yesterday said pinned the latest forecast cut on "lower market expectations."

"Loescher just hasn't delivered, I can well imagine that he will go," said Daniela Bergdolt of DSW, Germany's largest association for private investors, and who represented one million shares at Siemens's investor meeting, equivalent to 01 percent of the company's shares. "The explanation is missing, that's my issue. General Electric says it's the most wonderful year that we can think of."

GE Profit

Competitor GE last week said demand for jet engines and oil-and-gas drilling equipment drove the order backlog to a record. The Fairfield, Connecticut-based company also affirmed its forecast for 2013 profit-margin expansion and industrial revenue growth.

Siemens shares yesterday dropped as much as 7.6 percent, the biggest decline since March 2009, erasing 4.4 billion euros of market value. Siemens has fallen 1.3 percent this year, while ABB added 11 percent and GE gained 17 percent. Since Loescher took over in 2007, Siemens shares have dropped about 23 percent. The German DAX benchmark index has risen about 5 percent in the same period.

Weekend Meetings

Worker and shareholder representatives will meet separately over the weekend to discuss the company's leadership, according to a person familiar with the plans.

Loescher is also facing criticism from his own workers. In anonymous postings on Siemens' internal discussion forum, employees last week called for Chief Financial Officer Joe Kaeser to replace Peter Loescher as chief executive officer, according to screenshots obtained by Bloomberg News.

The company this week forbade unattributed postings on the web forum, and said in an internal document the move is not related to the "allegedly poor opinion among employees towards Peter Loescher."

A Siemens spokesman declined to comment on the talks between supervisory board members, the internal forum and guidelines for employees.

Scrapped Target

Loescher yesterday conceded that Siemens no longer predicts an operating profit margin of at least 12 percent of sales in the 12 months through September 2014. The profit goal was set last November as part of a 6 billion-euro savings plan. Siemens had a profit margin of 9.5 percent in 2012, when ABB and GE had margins of 10.3 percent and 15 percent respectively.

The forecast was cut after a majority of units said in their internal predictions that they will probably miss their goals, two people familiar with the matter said. The gap in so- called sector profit between the forecast and the actual numbers is currently 1.5 billion euros, one person said.

Loescher told employees this year that it's fair to judge him on his efforts to improve profitability at Siemens, which was Germany's biggest company by market capitalization between July 2009 and July 2012 before it was overtaken by software maker SAP AG.

Thornburg Investment, which at the end of May had the 13th biggest Siemens shareholding, according to data compiled by Bloomberg, sold its stake, Managing Director Bill Fries said by phone. "We changed our view," he said.

Faulty Turbines

Siemens fiscal third-quarter profit for the three months through June has been hurt by about 100 million euros in costs for faulty wind turbines, people familiar with the matter said yesterday. Siemens is scheduled to report fiscal third-quarter earnings on Aug. 1. The supervisory board will meet in its entirety one day beforehand, according to one person familiar with the matter.

The new charges add to provisions of 550 million euros for offshore power transmission problems and delays in train deliveries reported earlier this year. In June, Siemens said it will close its solar power unit following losses of at least 784 million euros since 2011. The unit could trim earnings by 500 million euros this year, it said in May.

"The admission their operational restructuring won't be able to lift their Sector EBIT margins back to their 2011 levels is likely to result in many investors stepping back," William Blair & Co. analyst Nicholas Heymann, who rates Siemens market perform, said. "Siemens has got an inertia factor as it reworks its portfolio while ABB is as adept as you can get."

Economic Headwinds

Loescher has said that his job at Siemens isn't made easier by the economic headwind he's facing.

"We are missing a growth engine around the world," Loescher said in a Bloomberg Television interview in May.

ABB, the world's largest maker of power transformers, said yesterday that second-quarter orders fell 7 percent from a year earlier to $9.3 billion as lower power-utility investments in Europe weighed on orders. At the same time, ABB reported a 16 percent increase in net income and kept its 2013 forecast.

Following Siemens' latest forecast cut, the pressure on Loescher will continue to increase, said Kronberg, Germany-based Fairesearch analyst Heinz Steffen.

"Loescher will again be in the line of fire," he said. "There just has been no progress."

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.